Monday, March 31, 2014

U.S. provides privatize the mortgage market

Efforts to reduce government support for the largest U.S. mortgage companies are gaining momentum , but the question now is: How much more could cost homebuyers if Congress reduces the size of Freddie Mac and Fannie Mae or the closing completely?
Recall that Freddie Mac and Fannie Mae collapsed in 2008 after posting huge losses on mortgages that ended badly too . In reality , companies do not make loans for housing, buy mortgages lenders , which are then packaged into bonds and sold to investors. For years , that helped the banks to reduce risk in their balance sheets.

Also released more money to lend , so that helped keep interest rates low . If borrowers failed to comply , the companies agreed to pay to investors because they had an implicit guarantee of the U.S. Government .

This system worked for many years until the housing market bubble burst, and the government rescued Fannie and Freddie with a bailout of nearly 200,000 million.

It is now clear that no one , especially the taxpayers, wants to revive the crisis, or pay for new bugs . And on Tuesday , U.S. President Barack Obama joined this " mantra " that calls for changes in Freddie and , similar to the Fannie bipartisan Senate plan that phased companies within five years and reduce the role of government in guaranteeing mortgage securities.

The idea of ​​reducing their size is nothing new . Since 2010, if not before , Republicans in particular have called for reducing the size of the mortgage giants . What differentiates current efforts is that the housing market has rebounded well and Freddie and Fannie , which guarantee 80% of all new home loans in the United States.

Under the latest proposals , taxpayers receive more protection , but that some costs will likely lead to the average home buyer by paying higher interest rates .

The chief economist at Moody 's Analytics , Mark Zandi, has made some estimates. If he's right , as the Senate plan , the typical homeowner with a $ 200,000 and 20 % down payment you could pay about $ 75 more per month in interest on a mortgage to 30 years, or about half a percentage point . Under the White House plan , which practically privatize the mortgage market , borrowers pay on average about $ 135 more per month.

Nobody is saying still shrink Fannie and Freddie will destroy the housing market. No doubt many other important details are unclear.

In addition to paying more in interest , borrowers could pay even more , if only indirectly, to an insurance fund administered by the government. Under the Senate plan , the Government will continue to play an important but limited role in the mortgage market by creating a Federal Mortgage Insurance Corporation (Federal Mortgage Insurance Corporation or FMIC ) .

This would be similar to the way the Federal Deposit Insurance Corporation (FDIC , for its acronym in English ) insures bank deposits. The FMIC insurance premiums charged to the industry and maintain an insurance fund , which come into play when a " substantial amount " of private capital has been exhausted , according to the Senate bill supported by Senators Bob Corker (R Tennessee and Mark Warner (D- Virginia) .

The question is what is considered a " considerable amount " . It is also uncertain how much premiums could cost lenders and how much of that cost would be passed on to borrowers.

Perhaps the most important question of all is this : If the mortgage market entirely left to the private sector would cease to exist popular fixed rate mortgage to 30 years ? This will depend largely on the creation of a FMIC , which absorb many of the risks associated with long term this type of loan , says Zandi .

If the mortgage industry is left entirely to the free market, would be less likely that lenders offering such benefits that have made the purchase more affordable for many borrowers .